The Dunphys are gathered for their Christmas message to Phil's parents, complete with ugly Christmas sweaters. Unfortunately, Phil and Claire discover a burn mark on the couch from a cigarette. They confront the kids, while Frank is still on video with them. Phil decides to channel his inner disciplinarian and threatens to cancel Christmas if none of the kids 'fesses up to the crime. But according to Claire, Phil has great pronouncements, but not-so-great follow-through. Putting Luke's dirty dishes in his bed didn't work so well, for example. Still, he drags the tree right out of the living room, ornaments and all.
Mitchell and Cameron take Lily to her first Christmas photo. Mitchell isn't happy with the non-fat-looking Santa they waited in a long line for, and Cameron has to deal with the caroling group in the mall he used to be part of before they kicked him out. Unfortunately, Mitchell's complaints about the thin Santa get him fired. They felt so bad about him (who lives in his car since his wife left) they invite him over to their house for Christmas. After stepping on eggshells around the boozing ex-Marine, Scott, whose clothes might come out of the dryer a bit pilly because of a dirty lint trap, Cameron's ex-carolers decide to sing in front of their house. Cameron is ready to go ballistic, but Scott preaches forgiveness (even mentioning that he forgave them for getting him fired). Cameron goes out and tries to be the better man. However, even his apology is off-key, according to Andrew who staged the caroling coup. Scott then punches him and tells Mitch and Cam they were nice, while Andrew was naughty.
After pulling a practical joke on Jay, which is a Colombian tradition at Christmas, Jay isn't much for having Gloria and Manny doing any more Colombian Christmas traditions at the house, and neither is happy about it. No fireworks, no having the Baby Jesus deliver the presents...
Haley, Alex, and Luke strategize for getting Christmas back. Alex suggests they pull a "Spartacus": Luke will confess he did it first, then Haley and Alex will do the same thing, with the hope of making Phil and Claire feel guilty for doing it. As it happens, they already feel guilty. Of course, never trust the two older sisters. Luke confesses, and Haley and Alex drop dime on him. The problem remains unresolved. Alex decides to take the bullet and confess. Christmas is back on, but it turns out the burn mark in the couch was caused by the crystal ornament Frank sent projecting the sun into that small spot. Phil begs forgiveness from the kids...by taking them to Italy.
After dropping off some Christmas presents, Jay decides to be flexible and buy some fireworks for Manny, since he wants Manny to have some of his own Christmas traditions with him and Gloria. That is, once Jay gets off one last practical joke of his own.